Early-stage Companies

Growing your fledgling business

You have created a commercially viable product or service. You have secured enough funding to support product development. You now need to leverage market research and refine your product for success in the marketplace. Accurate cash flow forecasting is essential. Are your commercial contracts protecting your interests? Is your valuable Intellectual Property protected? And are you managing your tax compliance obligations?

Managing expectations

The importance of business plans for funding

Your business plan should identify your business’s funding requirements and how these will be repaid. The business plan should also identify how the early stage business will use the funds. At the early stage, equity funding rather than debt is more likely to be available.

The investor perspective

When providers of finance (be that equity or debt) invest in an early stage business, they are buying into the management team and the ability of the business to protect their investment. It is important to bear this in mind when seeking funding.

Attracting and retaining key talent

Attracting key talent is essential for a growing business. For start-ups, it can be a huge challenge. They often do not have enough cash flow to offer the kinds of remuneration packages to attract and keep key employees.

There are some different schemes that can incentivise key employees. These can depend on the objectives of the business and the people involved. These schemes can help with a company's cash flow management by introducing equity as an element of an employee's compensation package.

These schemes also have the potential to become a significant and valuable element of an employee’s compensation package. They can promote employee loyalty and help the business achieve its growth objectives.

If properly structured, incentive schemes can also allow key employees to share in the growth in value of the business. They can be taxed at CGT rates (currently 33%), rather than income tax rates (up to 55%).

Tax reliefs are also available for employees working internationally. The Foreign Earnings Deduction allows a tax deduction for Irish residents working abroad. It applies in some 30 countries. The Special Assignee Relief Programme (SARP) provides income tax relief for individuals assigned to work in Ireland from abroad.

If properly structured, incentive schemes can also allow key employees to share in the growth in value of the business.

Research and development (R&D)

There are three key tax incentives that encourage innovation in Ireland:

Ireland’s R&D tax credit regime is very attractive. It provides an overall effective corporation tax deduction of 37.5% on certain R&D expenditure. The types of expenditure which can be subject to this credit are extensive and include both revenue and capital expenditure. R&D expenditure qualifies for a tax credit of 25% in addition to the normal tax deduction for R&D expenditure (12.5%).

If the company claiming the R&D tax credit has no corporation tax liability, which many start-up and scaling companies won’t yet have, the R&D tax credit can be converted into a cash payment from the Irish Tax Authorities to the value of the credit.

The Knowledge Development Box (KDB) rewards Irish tax resident companies who invest in Irish R&D activities. It reduces the cost of investing in R&D by taxing the profits associated with certain IP at a reduced rate of 6.25%.

Capital allowances on expenditure on certain IP assets can be claimed in some circumstances and can give rise to a tax deduction. Care needs to be taken as there are time limits within which claims can be made.